The program uses in-home counselors to evaluate and aid families in crisis with the goal of keeping children at home or reuniting them with parents. Counselors often help families address mental health or substance abuse issues that might otherwise require removing children from the home.

Seven Counties, the community mental health center for the Louisville area, issued a statement promising not to abandon clients and calling the decision "unfortunate and destructive."

It said the program employs 45 providers and annually serves more than 300 families in the region, helping children with emotional and behavioral disabilities who are often the victims of abuse and neglect.

"The committee's abrupt and punitive decision will harm the most high-risk children and will have a detrimental effect on the well-being of hundreds of families," the group said.

But lawmakers disagreed, arguing that similar agencies are available to step in and immediately address those needs. The committee approved contracts with at least six other agencies Tuesday that are administering the program in other parts of the state.

UPDATE: The head of the Finance and Administration Cabinet still has authority to override the committee's decision and move forward with the contract or make revisions to address the committee's objections.

Cabinet spokeswoman Pamela Trautner said the Cabinet for Health and Family Services must decide whether to request the override.

If so, Teresa James, commissioner of the Department for Community Based Services, said the state could give Seven Counties a 30-day notice and work to transition families into other agencies during that time.

But she also warned that officials must find providers with adequate training, credentials and staff to meet the needs and that even a short break in services could have an impact on Kentucky's foster care system.

"The one thing we have to be most careful about is that we don't have a disruption in service delivery, which could result in children being placed in foster care," James said. "Obviously, most agencies are not able to just come off the ground."

Seven Counties has provided the services for more than 25 years, and the two-year contract would have renewed a deal that was struck in 2012. But the Government Contract Review Committee denied the agreement in a 6-0 vote, with one member voting "pass."

Legislators cited anger over a recent maneuver by Seven Counties to leave Kentucky Retirement Systems, which faces more than $17 billion in unfunded liabilities. KRS attributes $90 million of that amount to Seven Counties, although Seven Counties disputes the claim.

"This sends a signal that we are not happy with an agency that contracts with the state and leaves us a bill for $90 million," said Rep. Brent Yonts, D-Greenville.

Sen. Chris McDaniel, R-Latonia, said agencies providing the same services elsewhere and could take over cases in Jefferson County "in fairly short order."

Lawmakers nearly voted down another $1.2 million agreement with Seven Counties for independent living services, but fell one vote short when some raised concerns that the services could not be immediately replaced.

Seven Counties filed for Chapter 11 bankruptcy last year, arguing that ever-growing pension costs had overburdened the agency and would force it to close.

A federal judge sided with the group in May, essentially clearing the way for it to withdraw from KRS. But pension officials have said that the case could shift liabilities onto other public employers in the system and set a precedent for dozens of similar agencies to flee retirement obligations.

Yonts, meanwhile, is urging the Cabinet for Health and Family Services to withdraw funds and state recognition from Seven Counties, or take over operations to reaffirm the unfunded liabilities.

Reporter Mike Wynn can be reached at (502) 875-5136. Follow him on Twitter at @MikeWynn_CJ.